After a gap of almost a year, UTI Mutual Fund has returned to the market with two debt-based plans. The new fund offers will hopefully begin the clawback for a company that has been through a turbulent year over a high-profile fight for its corner room and a regulatory ban last August against launching any scheme until it put its house in order.
Both schemes were permitted for launch by the Securities and Exchange Board of India after the UTIMF board appointed Imtaiyazur Rahman as interim chief executive officer last week.
The UTI Fixed Maturity Plan Yearly Series runs till Friday and will be listed on the National Stock Exchange. It is a closed-ended income scheme aimed at generating regular returns through investments in debt and money market instruments and government securities maturing in line with the time profile of the plan. The scheme will not invest in securities of real estate companies and the target amount is R20 crore.
The second scheme UTI Fixed Term Income Scheme which matures in 368 days was launched on January 16 and closes on Thursday. The scheme aims to generate returns by all of its assets in money market instruments with low risk profile. The scheme offers growth and dividend options and the dividend option offers payout and reinvestment options.
Without new schemes, UTIMF had been losing money as it could not offer any new plans to maturing investments in existing schemes. As a result, the company slipped to No.5 in the league of Indian mutual funds from No.3 at the end of 2010 in terms of assets under management.
UTIMF’s problems began after its chief UK Sinha left to become Sebi chairman in February 2011. A four-member team of senior officials took charge, but the arrangement fell foul with the regulator which imposed the ban. The ban led to the company losing out on opportunities to mobilise funds from popular debt schemes like fixed maturity plans.
With increasing interest rates, over 600 new FMPs were launched last year collecting over Rs 1 lakh crore. A fixed maturity plan is a fund that invests in debt and money market instruments of the same maturity as the stated maturity of the plan. Analysts say post-tax, FMPs offer better returns than bank fixed deposits and investors are still taking advantage of the high interest-rate scenario. Moreover, with the benchmark Sensex giving a negative 25% return last year, there was a shift in investors’ preference from equities to debt funds because of the predictability of returns in the high interest rate scenario.
The new CEO Rahman is also chief financial officer and company secretary. PN Venkatachalam, former managing director of State Bank of India has also been inducted as an independent director on the board of UTI AMC. With the changes, the board has become compliant with Sebi norms that require at least 50% of the board members to be independent, an important criteria for the fund house to function. Late last year, two independent directors, Anita Ramchandran, who was acting chairperson of UTI AMC and Prithvi Haldea stepped down citing personal reasons. State Bank of India, Life Insurance Corporation of India, Punjab National Bank, Bank of Baroda and T Rowe Price are UTI Mutual Fund’s five shareholders.